10 Mistakes to Avoid When Searching for Funding Online

You are most likely now online looking for business funding, and have taken a little detour to read this post (it won’t go unrewarded..!)

The objective is clear: to find out more about what the marketplace can offer your business, and maybe engage with one or two of these funders. But there are smart ways to look, and not-so-smart ways to look.

You’re going into the great unknown, a journey that you don’t know where it will ultimately lead.

Believe it or not there are mistakes that can be made when you go searching online, which can cost you time, and money. Below are ten mistakes it's possible to make, why you need to avoid them, and at the end of this article, a smart way to quickly find out all that you are looking for!

Mistake #1 - Thinking the Internet will provide the answers you are looking for

Mistake #2 – Trying to find a comparison site for business loans

Mistake #3 – Assuming all funders advertise and can be found on Google

Mistake #1 - Thinking the Internet will provide the answers you are looking for

The Internet, and Google in particular, is clearly a useful tool, but it may surprise you to hear that the internet is not going to provide you with the exact answers you are searching for.

The reality is, due to factors such as your unique business financials, and the flexibility of what rate/term you get from different funders, it is very hard to research and find out exactly what you will get as a rate and term, like you can for personal loans or residential mortgages.

The Internet is full of badly assimilated information from too many sources, and in particular, a lot of outdated information that predates 2008.

What the Internet will give you is a selection of firms to talk to, (e.g. lenders, consultants, brokers, etc.) It is important that you speak to marketplace experts about your own particular situation, which we will cover later.

Mistake #2 – Assuming all funders advertise and can be found on Google

It may surprise you to hear that some funders do not advertise their services. That’s right, some funders cannot be found on Google! This in turn begs the question, how do you know you have found a full quota of today’s options online? You don’t, and you can’t. Therefore if you’re only searching online you will not have a full portfolio of firms to evaluate. There is a way to find them,which we will go into later...

Mistake #3 – Trying to find a comparison site for business loans

One of the most time-consuming tasks when searching for funding is evaluating all your funders. You will probably have found out already that there is no such thing as a really good business loan comparison service, as you get in the residential space. Why is this? It’s because business loans/mortgages and other types of finance not only have more complex criteria when evaluating, there is not set pricing/fee structure either. It is why comparing advertised APRs for example is the sure fire route to picking the most expensive form of finance, as we shall now discuss.

Mistake #4 – Assuming the cheapest advertised APR is the cheapest and best lender

We’re all conditioned to look at APR as our benchmark, but this should not be your overarching benchmark with commercial finance. Whilst it is a starting point, some firms advertising low APRs have simply shifted some of the rate into their fee structure. It is critically important to evaluate lenders and funders on the true cost of finance, not the APR, and means including all fees, charges, disbursements, some of which are in the small print.

It is more important to work with a funder who supports your business, and with whom a good relationship is built. One funder might have the best rate, but they might also be the first to default you if things go wrong. Others might not.

Mistake #5 – Not knowing which keywords to use

It is vital that you are using a range of keywords, as different funders rank for different keywords. One of Google’s highest ranking keywords is of course “business loans”, which unfortunately gives you a number of links to high street banks, and one or two very specialist funders who mostly likely don’t operate in your sector.

Use creative sector based keywords to dig out different funders, such as “funding in (sector)”, “business finance (sector)”, “(sector) loans”, or "lending for xxx sector businesses"

Mistake #6 – Only looking on Page 1 of Google’s search results

Page 1 of Google, whilst trying to provide the researcher with a relevant list, rarely does so. Half of the businesses listed have bought advertising space, which gives you no indication of whether they are right for your business. In the business finance world, it is extremely expensive to be on Page 1, and you can find many, very good funders, lurking down as far as Page 10-20. If you are going to search, be determined to find the right funder.

Mistake #7 – Not having a thorough list of questions ready for a funder

Once you have found your funders, its important to understand on what basis you want to evaluate them. You are interviewing them as much as they are you. We have a list of questions you can find in our blog section using this link.

Mistake #8 – Not having your financial information up to date and ready

One of the slowest parts of the process typically is the collecting of information due to the lack of readiness. Prospective borrowers who have this part ready can get quotes within a couple of hours, rather than a couple of weeks or longer.

If your next set of Accounts will not be ready for a while, ensure you have up to date Management Information (MI) in spreadsheet format to email the funder/consultant. This can be very simple information comprising monthly sales and cost figures only.

Mistake #9 – Not checking with your bank

Honestly, 90% of businesses that enquire with us have stated they have not tried to have a chat with their own bank. Whilst it may well be the case that they won’t lend, you won’t know until you try. Banks are still one of the cheapest forms of funding in the marketplace, and some enquirers have been surprised when we have said bank funding for them is available. For overdrafts for example, a good rule of thumb across all banks is around 50% of your firm's monthly turnover.

Mistake #10 – Only speaking to lenders because you don’t want to pay broker fees

This is a major mistake for a few, simple reasons:

1) Not all intermediaries charge fees to borrowers. We as a company do not typically charge for example.

2) Lenders will not be willing or able to compare themselves to other lenders, in case you decide to go with the competition, and particularly if you are not sharing information on whomever else you are speaking to. Brokers/specialists/consultants give you an overview of the marketplace in far less time than it would take you to interview every option.

3) Consultants, or some brokers, deal with all lenders, funders and other syndicates across the board. They are the only type of funding body that does this and a good consultancy is well placed to know who to go to, compare the options for you, objectively, and get you in front of a high level contact quickly.

The final answer

The answer to many of these questions is to use a new breed of business finance consultant who solve a number of problems:

They short-cut a time-consuming and frustrating process by openly providing funding options that are available in the marketplace

Using Consultants means your business saves precious time searching when you could be getting on with your core business activities

They know funders that do not advertise

They know how funders work, having spent years dealing with them on hundreds or thousands of cases

They will tell you almost instantly whether you can get funding, on what terms and from who

They will help you compare options objectively

They will tell you what you need to have ready, and importantly, what you don’t have right so far

The better ones will not charge a fee, as they are paid as part of any arrangement fee the funder is already charging.

About Chris Davidson

Chris Davidson is Managing Director of Discover & Invest Ltd.

He believes passionately in providing businesses with market-leading financial insights that have a positive impact on the bottom line. As a result, Chris helps get the best rates and terms available at any one time.